EA Stock Drops 12%

Electronic Arts has reported its first lost as its shares fell 12 percent in after-hours trading. The company also cut its forecasts and said that the problems can be attributed to less than stellar sales for North American products and hardware shortages in Europe. To put into contrast the shares are expected to fall somewhere in between $1.62 per share to $1.64, far from the project forecast of $1.82 and $1.87 per share.

LOS ANGELES (CNN/Money) - Electronic Arts, the world's largest video game publisher, on Monday warned that quarterly profits would miss targets because older games were not selling as well as expected in North America and Europe and hardware shortages were cutting into sales.

After the warning, the company's shares fell 12 percent and weighed heavily on much of the rest of the sector.

Electronic Arts' U.S. market share on a dollar basis is roughly twice that of its closest competitor, Nintendo Co. Ltd. of Japan.

New releases were unable to offset a 'significant falloff' in sales of older, catalogue games, the company said.

Electronic Arts (Research) said it now expects to earn between $1.70 per share and $1.72 per share, excluding one-time items, for fiscal 2005 ending in March. The company's previous estimate was for earnings of between $1.90 per share to $1.95 per share.

Net earnings were forecast to fall between $1.62 per share and $1.64 per share, compared with a previous estimate of $1.82 per share to $1.87 per share.

EA said this was its first mid-quarter profit warning since going public.

In a conference call, EA's chief financial officer Warren Jensen said senior staff at the company will not receive bonuses this year, though other employees will.

The company singled out three reasons for the the anticipated shortfall. Primarily, it said, it underestimated the effects of the Holiday 2004 video game hardware shortage. (Retailers were regularly out of stock of Xbox and PlayStation 2 machines, as Microsoft and Sony were unable to keep up with demand.)

Also, momentum the company saw in its third quarter software sales did not continue into the holiday period. Similarly, titles released in the fourth quarter did not live up to expectations. The company specifically cited lower than expected sales of its "Need for Speed" and "NFL Street" franchises.

EA president Larry Probst also acknowledged sales of competitive titles, including "Half-Life 2" and "Grand Theft Auto: San Andreas" have cut into sales. "World of Warcraft," a massively multiplayer game from powerhouse developer Blizzard, he said "has had an impact on everyone in the industry."

"Everybody in the industry has been surprised with 'World of Warcraft,'" he said. "I can tell you from firsthand observation that there are people who haven't played games in years who are now spending 15 to 20 hours a week playing 'World of Warcraft'."

EA shares fell to $58.63 in after-hours trade on INET after closing on Monday at $66.35 on Nasdaq. Shares in the top publishers and retailers were down about 5 percent to 7 percent in after-hours trade on the news.